Objective of Treasury Management
The objective of treasury management is to manage an organization’s financial resources, including its cash, investments, and risk exposures, in a way that maximizes value and minimizes risk. Some of the specific objectives of treasury management include:
Ensuring adequate liquidity: Treasury management aims to ensure that an organization has sufficient liquidity to meet its short-term and long-term obligations. This involves managing cash flows and maintaining appropriate levels of cash reserves.
Maximizing returns: Treasury management aims to maximize returns on an organization’s financial resources by selecting appropriate investment vehicles and implementing effective investment strategies.
Mitigating financial risks: Treasury management aims to identify, assess, and mitigate various types of financial risks, including credit risk, market risk, interest rate risk, foreign exchange risk, and commodity risk.
Optimizing funding and capital structure: Treasury management aims to optimize an organization’s funding and capital structure to support its operations and growth objectives. This includes managing debt and equity financing, and optimizing debt repayment schedules.
Compliance with laws and regulations: Treasury management aims to ensure that an organization complies with all relevant laws and regulations, including tax laws, accounting standards, and financial reporting requirements.
Overall, the objective of treasury management is to provide strategic guidance and manage an organization’s financial resources and risks in a way that supports its overall mission and objectives. Effective treasury management is critical to the success of an organization, as it ensures the efficient use of financial resources and the mitigation of financial risks, while also providing strategic guidance to support growth and development.
(i) Risk Management
- Constantly ensure minimization of risk and volatility and thereby aiming to achieve the treasury management strategic objectives.
- Ensure the stability of the financial position, by sound risk management techniques.
(ii) Borrowing Objectives
- Accomplish the lowest level of interest paid on the debt as prudently possible while at the same time minimizing the potential volatility of the average rate of interest.
- Manage the debt maturity profile.
- Ensuring stability against future risks from movement in interest rates or variable rate borrowing.
- Ensure that the average maturity period of long-term loans outstanding is greater than 7 years.
- Ensure that exposure to different types of borrowing instruments is at a prudent level relative to outstanding debt.
- Utilizing debt restructuring and debt repayment opportunities that may arise, for future revenue savings by taking into consideration the risks involved.
(iii) Investment Objectives
- Achieve an overall return on total deposits
- Achieve an average rate of interest that falls within the best performing quarter
(iv) Forecasting Objectives
- Establish and continually review forecasts of interest rates to provide a basis for treasury management decisions.
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